Bhansali prefers an 11-month lease because it doesn’t need to be registered. “It saves registration costs and the hassle of making an agreement. If you conclude a two-year agreement and the tenant decides to leave in ten months or earlier, you will again have to go through the process of registering a new agreement, obtaining witnesses, finding an intermediary for the registration, etc. “, he says. “However, I make sure that I only rent the apartment to a family.”
Both tenants and landlords consider various factors when determining the duration of a rental agreement. While some prefer an eleven-month pact because agreements of less than twelve months do not need to be registered unless specific state laws require otherwise, others choose to register agreements regardless of term. Some also prefer longer term agreements as this provides predictability for both the tenant and the landlord.
However, not having a registered agreement with the right terms can sometimes be counterproductive. Take the case of Keerthi Sanagasetti. When she moved out of her flat in Chennai, her landlord refused to refund her deposit and instead charged several charges related to general wear and tear.
“We eventually had to take the case to the local police station. The police eventually told the landlord that he cannot charge us on these grounds and must refund our deposit,” the 31-year-old recalls.
She says she would have preferred to have the lease registered, but until 2019, registration of the lease was not mandatory in Tamil Nadu for eleven months or less. According to the Tamil Nadu Regulation of Rights and Responsibilities of Landlords and Tenant Act, the lease must be registered irrespective of its term. “I would prefer a 12-month lease because that would give us more flexibility as tenants,” she says. Sanagasetti now lives in Delhi, where she has a registered lease for one year.
Mumbai-based Bruhadeeswaran R., who has been renting in Mumbai since 2014, says he has rarely had problems with a landlord. “I have always found landlords in Mumbai very accommodating when it comes to registering the lease,” he says.
Section 55 of the Maharashtra Rent Control Act, 1999 requires that all rental agreements, irrespective of their duration, must be in writing and registered.
He says he preferred to register his agreement for a period of two years. “It helps me understand my rental costs in the coming months so I don’t have to worry about my family’s annual move,” says Bruhadeeswaran.
He says he had an unpleasant experience outside Mumbai. He mentions a short window for work in 2022 in Noida. “This landlord just had a rough deal with me and didn’t even share his PAN number. So, I could not claim HRA deduction at the time I submitted the income tax receipt to my employer,” he recalls.
“The landlord only accepted cash and expected me to take up his appointment every month and drop off cash at his house. According to the agreement, payment can be made between the first and fifth of each month. But when I couldn’t hand over cash on the first of a certain month, which I normally did, he called and spoke rudely. That’s when I decided I had to look for a new home,” he says.
“There were also other problems… such as drinking water. Ultimately, I paid the cost of repairing the RO,” he added.
Also read: How to claim deductions and save on taxes on rental income
Legal vision
According to the Registration Act 1908, a rental agreement of less than 12 months does not have to be registered. However, if the laws of a state government require registration of the lease, it is mandatory because land is a state subject.
An unregistered eleven-month agreement, where the required stamp duty is paid, may still be a legally permissible document, but either party can challenge its enforceability in court.
“An unregistered lease, although legally valid for eleven months or less, carries risks for both landlords and tenants. For landlords, this can weaken their ability to enforce evictions or recover unpaid rent through legal channels. Tenants, on the other hand, face challenges in claiming refunds of security deposits or addressing arbitrary changes in terms and conditions,” said Asha Kiran, partner at King Stubb & Kasiva, Advocates and Attorneys.
“Conversely, a registered lease offers stronger legal enforceability, but also comes with its own considerations. For landlords, it holds them to agreed terms, limiting flexibility, while tenants are bound by legally enforceable rental and lease terms,” she added.
For example, a registered agreement can specify the lock-in period for the tenant, which essentially means the tenant’s minimum period of stay. This can typically be anywhere from three to six months and if the tenant decides to leave before lock-in, the tenant will be liable to pay any monthly rent pending under the lock-in clause.
Similarly, a registered agreement will specify other terms and conditions of the lease such as the minimum notice to be given to the tenant, the tenant’s security deposit, the PAN number of tenant and landlord and other details.
“The tenant may legally challenge any deduction from the refundable deposits, which they believe is unwarranted, and the landlord may have to prove its validity in court,” says Suresh Palav, partner, IndiaLaw LLP.
In both cases, stamp duty must be paid. “A lease for a period of 11 months or less does not require mandatory registration, but the applicable stamp duty is subject to payment,” said Niraj Kumar, partner at DSK Legal.
Also read: Buying a house versus renting in a scenario with rising interest rates
Fees and costs
The registration fees and stamp duty charges would vary from state to state. And it also depends on the duration of the agreement and the rental amount.
Here’s an example to show what it could cost. A home with a monthly rent of ₹65,000 in Maharashtra, will attract a stamp duty ₹3,950, registration fee of ₹1,000 and document processing charges of ₹300. For the same rent and duration, the stamp duty in Gujarat amounts to ₹1,820.
In Maharashtra, the lease agreement can be registered online by anyone using a biometric reader. Brokers can therefore also draw up rental agreements for their clients.
Also read: Why this real estate agent stays on the rent
Drawing up an agreement
The first step is to ensure that the rental agreement is properly drawn up.
Rental agreements may fall under different categories and be governed by different statutes; it all depends on the construction of such agreements, explains Soumya Banerjee, partner at Aquilaw.
“Several Indian states have state-level rental laws that regulate rental agreements. Also, the leases may fall under the jurisdiction of the Transfer of Property Act 1882 and be considered a lease. Furthermore, rental agreements can be considered. to be a leave and license agreement under the Indian Easements Act, 1882, if the rights granted under the said agreement are only in the nature of permissive possession,” he explains.
A lease is a transfer of the right to the other party to enjoy the property in question for a predetermined period or forever. It is defined under Transfer of the Property Act. With a lease, actual ownership is transferred to the lessee. It creates interest on rented property in favor of the tenant.
However, a leave and license agreement is a legal document that allows one party to allow another party to use their immovable property, that is, real estate, for a specified period of time without any change in the ownership of the asset . No interest whatsoever arises in favor of the other party. Leave and license agreements are commonly referred to as leases and are defined under section 52 of the Indian Easements Act.
Notarization is an option if you do not wish to register a lease of 11 months or less, but it does not have the same enforceability as a registered lease.
“Notarization is not legally required for leases of less than twelve months. However, many people have such agreements notarized as an additional measure of authenticity and to create a fundamental legal recognition of the lease terms,” says Abhilash Pillai, partner at Cyril Amarchand Mangaldas.
Therefore, it is advisable to register a lease agreement, regardless of term, to ensure the full enforceability of all terms.
Also read: Rental growth in India’s largest cities is slowing due to the surge in housing supply
The long and short of it
If you are a tenant, a longer term lease is generally advisable as it allows you to manage your rental costs as well as rent. escalations, for a longer period of time. You don’t have to worry about fluctuations in the rental market or having to renegotiate with the landlord every year.
On the other hand, if you are a landlord, a shorter term agreement gives you the flexibility to renegotiate contracts annually to ensure you get the best market rate. The downside, however, is that it doesn’t offer the predictability of a long-term rental.
